Scenario: Sam Dearing, Budding International Financier
Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work.
-Sam's mentor is excited about the wheat prices in France and the U.S.because he sees an opportunity to buy wheat in the U.S.and sell it in France,which is known as a(n)________.

Question

Quizplus · Accepted Answer

An arbitrage opportunity is a situation where an investor can buy an asset in one market and immediately sell it in another market at a higher price to make a riskless profit. In this scenario, Sam's mentor sees an opportunity to buy wheat in the U.S. at a lower price and sell it in France at a higher price, which is an example of arbitrage. Therefore, option B is the correct answer. Option A, exchange rate profit, is not the correct term for this situation because the profit is not solely due to exchange rate fluctuations. Options C and D do not apply to this scenario.